Energy Prospectus

Opening Prices:
> WTI is down 32c to $66.97/Bbl, and Brent is down 17c to $69.34/Bbl.
> Natural gas is down 3.1c to $3.915/MMBtu.

AEGIS Notes
Oil

Oil prices opened lower for the third day in a row, driven by the growing threat to demand from the spread of the delta variant
> The slide in oil prices pushed put skew more bearish
> The Biden administration will proceed with federal oil and gas leasing so it can comply with a recent court order it has decided to appeal

On Monday, the US Interior Department appealed a federal judge’s preliminary injunction that effectively blocked Biden’s order on January 27 to halt leasing during a comprehensive review (Argus) < So Team Biden wants to lower US oil production and import more oil from Russia. A bit ironic.
> The administration’s announcement followed a joint lawsuit filed by the American Petroleum Institute (API) and 11 other groups, arguing that the Biden admin violated the law by suspending oil and gas leasing since taking office
> The API-led lawsuit is one of many but represents the largest coalition of large oil and gas producers

WTI’s put-skew widened on Monday following the third day of trading loses
> The spread between WTI’s three-month 25-delta put and 25-delta call has widened to -7.95; the widest since February
> A wider spread, or deeper put-skew, means that traders are leaning more bearish as they see more risk to the downside
> AEGIS notes that the more bearish put-skew is still nowhere near levels observed in November of 2020, where put-skew was double current levels

Natural Gas

Gas prices are down 1.3c near $3.94 this morning after recovering 8.5c of last week’s 28c rout yesterday
> Weather forecasts for the next five days are looking much warmer in the south-central and eastern U.S.

Transco seeks partial in-service for Leidy South Project
> Transco is seeking approval by August 20 so that it can place its new compressor unit in service by September 1
> The project will create an additional 582 MMcf/d of capacity to bring gas from northern and western Pennsylvania to markets in Transco’s Z-5 and Z-6 < More takeaway capacity from PA is good news for AR, EQT, RRC and COG that will soon merge with Sweet 16 member XEC.

California gas prices soar as pipeline rupture constrains supplies
> A segment on Kinder Morgan’s El Paso Natural Gas Pipeline ruptured and caught fire on Sunday near Coolidge, Arizona
> Spot SoCal Citygate prices rallied by $3.09 on Monday to finish at $7.65/MMBtu < A reminder that natural gas prices are set by regional supply/demand. I expect there to be significant natural gas price spikes this coming winter. The utility companies that bring gas to your home will be bidding against utilities that need lots of gas for power generation, LNG exporters and petrochemical companies. The US natural gas market will get very tight in Q4.
> Flows at the Ehrenberg-Southern California Gas interconnect have already fallen off by 23% from 893 MMcf/d to 688.1 MMcf/d

Reuters

Oil prices weakened for a fourth session on Tuesday, on the back of surging cases of coronavirus in Japan, a weak demand picture in Asia and a belief in OPEC and among its allies that the market does not need more crude.

Brent crude was down 39 cents, or 0.6%, at $69.12 per barrel as of 1:15 p.m. ET (1715 GMT.) U.S. West Intermediate crude (WTI) fell 64 cents, or 1%, to $66.65 a barrel. Both contracts had fallen for three straight sessions.

"We continue to see $65 support in WTI but less forceful rebounds that see sellers pour in earlier," said Craig Erlam, senior market analyst at OANDA.

"A move below here would be a significant technical breakout and surely reflect serious concerns about growth in the coming months as Delta (coronavirus variant) causes increasing restrictions around the world."

Japan, the world third largest economy, extended its state of emergency in Tokyo and other regions on Tuesday and announced new measures covering seven more prefectures to counter a spike in COVID-19 infections that is threatening the medical system.

Meanwhile New Zealand entered a new lockdown after the country's first coronavirus case in six months was reported.

Hedge funds and money managers cut net long positions in U.S. crude to the lowest since November in the week to Aug. 10 as resurgent coronavirus infections in several countries dampened hope for of a rapid resumption in long-distance air travel.

"The oil market will likely require a distinct down trend in the virus that will allow China to reopen its economy," said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois. This would permit the energy market to establish support and stem the number of bullish positions being unwound.

Daily crude processing in China, the world's biggest oil importer, fell to its lowest in July since May 2020 as independent plants slashed production amid tighter quotas, high inventories and weakening profits, data showed on Monday.

China's factory output and retail sales growth also slowed sharply and missed expectations in July, as new COVID-19 outbreaks and floods disrupted businesses.

On the supply side, U.S. shale oil output is expected to rise to 8.1 million barrels per day (bpd) in September, the highest since April 2020, according government data on Monday.

U.S. crude inventory data from industry group American Petroleum Institute was due at 4:30 p.m. ET.

Nine analysts polled by Reuters estimated, on average, that crude stocks slipped by about 1.1 million barrels in the week to Aug. 13.

Last week, U.S. President Joe Biden's administration urged OPEC+, which groups members of the Organization of the Petroleum Exporting Countries and other producers such as Russia, to boost oil output to tackle rising gasoline prices.

But four sources told Reuters on Monday that the group believes oil markets do not need more crude than they plan to release in the coming months.

Closing Prices:
> WTI prompt month (SEP 21) was down $0.70 on the day, to settle at $66.59/Bbl.
> NG prompt month (SEP 21) was down $0.109 on the day, to settle at $3.837/MMBtu.

I've had enough of this crap. The stock are trading levels as if WTI is at $50 and ngas is at $2.50. We need a good oil storage report from API.

It is hard to tell how up-to-date it is, but the Texas Covid website seems to indicate that the number of deaths from Covid has declined significantly from week to week. The Delta Variant seems to be less deadly. IMO it would help if the media focused on the number of people that need to be hospitalized and not report the number of new cases since many of them may be the regular flu. It is still extremely difficult to make sense of the politicized data.